Producer Price Index: Headline And Core Both Below Forecast

by: Doug Short

Today's release of the December Producer Price Index (PPI) for finished goods shows a month-over-month decline of 0.2%, seasonally adjusted, in Headline inflation. Core PPI rose 0.1%. had posted a MoM consensus forecast of 0.0% for Headline and 0.2% for Core PPI.

Year-over-year, Headline PPI is up 1.3% and Core PPI is up 2.0%.

Here is a snippet from the news release:

In December, most of the decline in the finished goods index can be traced to a 0.9-percent decrease in prices for finished consumer foods. The index for finished energy goods fell 0.3 percent. By contrast, prices for finished goods less foods and energy inched up 0.1 percent.

Finished foods: Prices for finished consumer foods fell 0.9 percent in December, the first decrease since a 0.4-percent decline in May 2012. Over one-third of the December decrease can be traced to the index for beef and veal, which moved down 4.8 percent. Lower prices for fresh and dry vegetables and for natural, processed, and imitation cheese also were factors in the decline in the finished consumer foods index. (See table 2.)

Finished energy: The index for finished energy goods moved down 0.3 percent in December, the third straight decrease. Leading the December decline, gasoline prices fell 1.7 percent. Lower prices for liquefied petroleum gas also contributed to the decrease in the finished energy goods index.

Finished core: The index for finished goods less foods and energy edged up 0.1 percent in December, the same rate as in November. Leading the December advance, cigarette prices increased 2.0 percent. More...

Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI declined significantly during 2009, and increased modestly in 2010 and more rapidly in 2011. This year, the YoY Core PPI trend had been one of gradual decline.

As the next chart shows, the Core Producer Price Index is more volatile than the Core Consumer Price Index. For example, during the last recession, producers were unable to pass cost increases to the consumer. Likewise in 2010, the Core PPI generally rose while Core CPI generally fell. Last year, these two core metrics generally moved in tandem, but in 2012 the spread has narrowed, largely because of the faster decline in Core PPI.

Tomorrow will bring us the more widely followed Consumer Price Index (CPI) inflation indicator.